If you're in your 30s, balancing a career and a family may have you feeling as if there's no time left over to worry about retirement, too. However, the planning for retirement that you do in your 30s can have a major impact on your long-term financial well-being. With that in mind, here are three tips from our Motley Fool experts that can help 30-somethings kick-start their retirement planning.
Hopefully, by the time you're in your 30s, you've found a job that offers you some kind of retirement plan. For most people, that will take the form of a 401(k), 403(b), or 457 plan. The money Americans put away in these accounts is often one of the leading providers of income in retirement. These plans are only becoming more popular as the prevalence of pensions, especially in the private sector, is waning significantly.
While it's always good to save as much as you can, I encourage those in their 30s to, at a bare minimum, contribute whatever is necessary to their 401(k) to get the maximum company match. For instance, my previous employer offered to put 3% of my salary into my 403(b) just for participating in the plan, and it matched the first 3% I put into my plan. In essence, all I had to do was save 3% of my salary, and 9% of it would go toward retirement savings.
This is literally free money that your employer is offering to encourage you to save for your retirement. While it might be tempting to take that money and spend it now, it can serve as a great foundation for your retirement savings.
The biggest challenge that people face in their 30s is trying to prioritize what seem to be conflicting financial needs. Many 30-somethings have already started or are looking at starting a family, and that can create not only the direct financial needs to support a child but also a desire to build a higher-quality standard of living. Purchasing a home or a vehicle that fits a family lifestyle is a common theme among parents in their 30s, and as your children age, thinking about saving toward college expenses starts to carry more weight as well.
In that light, it's tempting to think that there's no room for retirement planning in your 30s. But even when there are conflicting priorities, you don't have to ignore retirement entirely. As Brian notes, taking advantage of retirement plans to get free employer contributions can be the best use of your money. Moreover, saving for retirement can open the door to other ways to cover different costs. For instance, financial aid forms generally exclude the value of retirement accounts from parental assets, giving you an incentive to shelter wealth in an IRA, 401(k), or other retirement savings vehicle. Even if it means being a little slower in achieving your other financial goals, you can't afford to miss out on the saving potential that you have during your 30s.
In our 20s, our decisions often revolve around the present, but as we move into our 30s, rising incomes and responsibilities prompt us to focus more on the future, especially when little ones are in the picture.
That's a good thing, because it can mean investors are embracing retirement plans and preparing for the costs associated with a child's education. However, despite those preparations. many people in their 30s still fail to recognize the true cost associated with their spending. As a result, they tend to overspend on items that depreciate, such as cars, rather than invest that money instead.
Consider this point. The average cost of a new car is $31,252. Assuming a person puts down 20% and takes out a $25,000 loan at a 3% interest rate, the monthly payment on a five-year loan to buy that car would be about $450 per month. But the real cost of that monthly payment isn't $450; it's also the lost earnings opportunity tied to investing that money instead. If $450 were set aside every month for 30 years in an investment returning a hypothetical 6.5% per year, it would grow to about $466,430. So the true cost associated with a monthly auto payment isn't just the purchase price and interest; it's also the forgone investment. Keeping that in mind during your 30s could help you keep spending in check, allowing you to sock away more money for your golden years.